The Future of Banking

On today’s show we’re talking about the shift that is taking place in the world of banking.

The landscape in banking varies widely in the US. There are a handful of big banks and still a whole lot of smaller banks. Banking in the US has undergone a tremendous amount of consolidation. Before the financial crisis in 2008, there were over 10,000 banks. Over the past decade, that number dwindled to about 6,000. As of today, the FDIC lists 4,982 banks in total.

Many of these are small community banks with only a handful of physical branches. Some were forced into consolidation after the banking regulator determined that the weaker banks were too thinly capitalized in their stress tests.

There is a difference between banks. Many depositors choose their bank based on convenience to the closest physical branch. Some depositors choose their bank based on incentives like a free toaster to open an account. Others choose the bank based on the fees charged on each account.

We like to use smaller community banks for borrowing against local real estate projects. The executive team and loan committee understand the local market better than the large national banks. These smaller banks have a bit more latitude in their lending criteria. When you deal with a large national bank like Wells Fargo or Chase you are just a number and their policies are often dictated by market conditions in other cities that don’t actually apply in your city.

But I’m also here to tell you thank banking is about to undergo another major transformation. Some banks choose to grow organically. Others choose to grow through acquisition.

TD, which is a Canadian bank is increasingly a major player in the US market. Most American clients don’t even know that TD stands for Toronto Dominion Bank. TD announced in their latest investor disclosures that they plan to hire 2,000 software developers this year. That’s on top of the 350 software developers that were hired in 2021.

When you consider the full cost of investment in that large a software development team, you are looking at more than $500M dollars per year. TD is consciously making a decision to add $500M in operating expense to annual budget. Said differently, they’re choosing to remove $500M in profit from the bottom line return to shareholders on an annual basis. That’s a massive investment.

What will they be doing with all these software developers? Listen to find out.